captioning sponsored by macneil/lehrer productions >> lehrer: former international financier dominique strauss-kahn was released without bail as questions arose about the woman who accused him of sexual assault. good evening. i'm jim lehrer. >> brown: and i'm jeffrey brown. on the newshour tonight, we look at today's courtroom proceedings, and examine where the prosecution's case stands now. >> lehrer: we get the latest on new clashes in syria from npr's deborah amos in damascus. >> the president wants to have a national dialogue, he says on july 10th. this group says nada, we are

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not your partners until the violence stops on the streets. >> brown: paul solman talks to the authors of a provocative new book on how fannie mae's push- for-profits helped pump up the housing bubble. >> if you are trying to enrich yourself, increase your profits, which fannie mae was absolutely determined to do then that becomes a per version of home ownership. >> lehrer: mark shields and michael gerson analyze the week's news. that's all ahead on tonight's newshour. major funding for the pbs newshour has been provided by: >> well, the best companies are driven by new ideas. >> our future depends on new ideas. we spend billions on advanced technologies. >> it's all about investing in the future. >> we can find new energy-- more cleaner, safer and smarter. >> collaborating with the best in the field. >> chevron works with the smartest people at leading universities and tech companies. >> and yet, it's really basic. >> it's paying off everyday.

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the william and flora hewlett foundation, working to solve social and environmental problems at home and around the world. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >> brown: the sexual assault case against dominique strauss-kahn took a surprise turn today into legal limbo. it gave new hope to the former head of the international monetary fund, whose career collapsed when he was arrested in may. strauss-kahn walked out of a new york city courtroom this afternoon, free from house arrest, but still accused of attempted rape and other

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charges-- at least, for now. during the hearing, it became clear that prosecutors are rethinking their case, based on mounting questions about the accuser, an immigrant hotel housekeeper from guinea. >> although it is clear the strength of the case has been affected by the substantial credibility issues relating to the complaining witness, we are not moving to dismiss the case at this time. >> the defense moves for the exoneration from bail in current conditions and dominique strauss-kahn's release on his own recognizance with the condition that his passport remain surrendered. >> i understand that circumstances surrounding this case, from the viewpoint of the parties, have changed substantially, and i agree. there will be no rush to judgment in this case. people will continue to investigate and reexamine the matter, as is appropriate, and

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expect the matter to go on as it should in a manner that is fair as it can be to all concerned parties. >> brown: "the new york times" and others reported that investigators now believe the accuser lied about elements of her own background, including her association with an imprisoned drug dealer and part of her account about the sequence of events after the alleged attack. strauss-kahn's attorneys said those reports, and today's hearing outcome, are a great relief. >> at each appearance, we asked you and we asked the world not to rush to judgement in this case, and now i think you can understand why. we believed from the beginning that this case was not what it appeared to be, and we are absolutely convinced that, while today is a first giant step in the right direction, the next step will lead to a complete dismissal of the charges. >> brown: ken thompson, a lawyer

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for the accuser, fired back that a crime was still committed and is supported by the physical evidence. >> the victim, to this very day, maintains that he sexually assaulted her in that room. knowing very well the forensic evidence shows that; knowing very well, to this very day, that they have a picture of her bruised vagina; knowing very well that she suffered a tear to her ligament when he threw her down to the ground. and knowing that they have a pair of stockings that were ripped by dominique strauss- kahn. >> brown: thompson also demanded that prosecutors continue to push forward with the case. >> we don't have confidence that they are ever going to put dominique strauss-kahn on trial. so the victim will stand before you and tell you, because she said, "i will go to my grave knowing the truth, knowing what this man did to me." >> brown: for his part, the manhattan district attorney, cyrus vance, insisted he is in

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no rush to reach any final conclusion about strauss-kahn or his accuser. >> today's proceedings did not dismiss the indictment or any of the charges against the defendant. our prosecutors from the manhattan d.a.'s office will continue their investigation into these alleged crimes, and will do so until we have uncovered all relevant facts. the vindication of the rights of sex crime victims is among the highest priorities of this office. >> brown: the charges last may had dashed strauss-kahn's standing as a leading presidential contender in france. today, supporters said it's unclear if he can reclaim that status. >> ( translated ): it's a thunder clap that this has produced, but it's not like when this first happened, because the fact remains that, even if the charges against him collapse, he will still have already been thrown to the lions. >> brown: strauss-kahn's next

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scheduled court date is july 18, and until then, he is free to move around the united states. sara eisen, a reporter for bloomberg television, has covered the case from the start and was in the courtroom today. she joins us from new york. also with us from los angeles-- laurie levenson, a former federal prosecutor and current professor of law at loyola law school. so sara, i will start with you. what was it like in that courtroom today, tell us about the scene and strauss-kahn's appearance? >> well, it was a media circus, just like the other court appearances from dominique strauss can. a little less chaotic, perhaps, then the last time. still, the public seating was full inside the courtroom. everyone waiting for a glimpse of dominique strauss can. he walked in with his wife. he looked more refreshed, sirius yet confident, an air of confidence we did not see the last time he appeared in court. remember at that time he had just spent four nights in a likers island jail cell, walked in, once it was determined that he was going

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to go free from house arrest relooked as if a weight had been lifted. and indeed it had. just the latest sensational twist in this long running saga. >> brown: sara, tell us a little more about some of the credibility questions that came up. as i said in that piece, some had to do with her past. and some have to do with what she said happened on the day of the alleged assault. >> right. in some ways the fireworks really today happened outside the courtroom. not even inside because that lasted only about nine minutes. outside we did learn more about these accusations that her credibility had been seriously in question. the prosecution in court papers today releasing new details about her account, that she falsely gave an account to the grand jury about the night of the alleged attack in the hotel room in new york city. according to court papers and the prosecution, she actually left the room after her alleged attack to clean

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another room, came back to dominique strauss-kahn's room and then proceeded to tell her colleagues at the hotel what had happened to her. so this was just another -- it was a revelation today from the court paper approximates of what had happened that was really undermining her credibility. also then we heard from kenneth thompson who was the lawyer, as you said, for the made. and he gave lengthy, lengthy accounts of what she said had happened that night. and so really outside the courtroom was really where most of the action was. and the credibility issues really came to light. >> laurie levenson, help us understand what is going on here. a lot of these credibility questions, as we say, are about things that don't have to do with the actual case. they go to, i guess, character. what is going on? >> well, the key issue in this case is who do you believe. because we know that there was some type of sexual encounter by the physical evidence. he says it was consensual, she says it wasn't. so her credibility really will be at issue in this

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trial. and the defense lawyers get to use whatever they can except for her past sexual past to challenge her credibility so if she lied, for example, in an immigration paper or if she lied to the grand jury, or if she lied any time under oath, that's something that the jury is going to hear about. >> brown: now in some ways those are very routine issues for a lot of cases but this, of course, laurie levenson is not a routine case. is it unusual for such a high profile case like this to take a turn? >> well, a bit. but not totally. i mean we can't forget about cases like the kobe bryant case and the like where we had a lot of sensational accusations. and ultimately that case was dismissed. so what happens here is that the prosecutors, i think rightfully, listen to the victim, want to believe the victim, bring the charges. but then the investigation keeps going. especially if the defense brings to their attention avenues of challenging that

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credibility. and i give a lot of credit to the prosecutors in this case for continuing to look deep into it, to make sure they really have a case come trial time. >> brown: really, sara eisen, we saw the prosecutor cyrus mance come out and say it continues. but do we know what continues? what exactly happens now, do we know? >> well, he made it clear that they are not dropping the charges. also the prosecution has not downgraded the charges. basically what came out today from the prosecution in a stunning reversal from last time is that this serious credibility issues with the accuser were there. and that their case has been significantly weakened from the initial arrest of dominique strauss-kahn it was very interesting to hear the prosecution today because last time we were in court, they were emphatic about how strong their case was and the testimony of the witness, the main witness, the accuser. this is going to continue though. they made it clear their investigation will continue and dominique strauss-kahn will be back in that new york city courtroom on july

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18th where he is still facing very serious charges of attempted rape and sexual assault. >> tell us a little bit more about the high profile nature from the prosecutor's side. there's a lot of politics involved here in terms of as you said, they made it a big case from the start and said they had the case. >> yeah, they said they had the case. and we did hear from cyrus mance today. also ken thompson the lawyer for the accuser, for the made, he criticized the manhattan district attorney, said that they perhaps were fearing they mr. going to lose the case. they were setting up for a dismissal. they were very critical. he even referenced manhattan district attorney's recent cases that had failed. so this is a very interesting dynamic. and this could be a major blow for cyrus mance, the manhattan district attorney. today we did not see that strong, confident prosecution we saw in the last two courtrooms. >> brown: laurie levenson, pick up on that last part.

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the split that we saw when the attorney for the accuser came out was very strongly going after the prosecutor for dropping the ball, for not picking up, and really telling him, do not let go of this. how unusual is something like that? >> well, you know, this is a big advocate for the victim. and a lot of victims don't have such an advocate. but frankly for the prosecutor, he's in a tough place. because even if he personally believes his victim, he has to keep in mind, can i prove it beyond a reasonable doubt to the jury given who this defendant is. and so what the victim's lawyer is saying, you know what, don't be a cow ard about this. maybe she lied, but we think the jury will still believe her. and i think the prosecutor is saying if she lied under oath to a grand jury, given the quality of the defense lawyer he has, i don't want to see what's going to happen during this trial. >> brown: so laurie levenson, what happens over the next month or so in the prosecutor's office, what are you -- from your experience, what do you think they're doing now?

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>> well, after they got over the initial panic i think what they are doing is tracking down every statement she made, seeing if they can corroborate her story as much as possible, seeing under what conditions she might have made false statements and whether they can be explained away, and frankly trying to find as much evidence outside of her that might support these charges. the physical evidence, what other witnesses say happened, maybe other potential victims. that's what could save this case. >> and sara, finally, they told us there would be another hearing in july. do they say what would happen or what exactly that is for? >> no, they did not say. but this is the scheduled hearing when he was supposed to appear in court. today it was a surprise hearing on that bail modification. what i can also tell su ben rothman, lawyer for dominique strauss-kahn spoke outside the courthouse afterwards to reporters smiling, beaming outside of the courthouse saying this is a fourth of july weekend.

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dominique strauss-kahn has his freedom. it is the first step, he says for him. the next step according to ben will be complete dismissal of the charges. so we will see. they certainly were confident coming out of today. >> brown: sara eisen, laurie levenson, thank you both very much. >> thank you. >> thank you >> lehrer: still to come on the newshour: syrian protestors turn out in force; fannie mae and the banking crisis; and the analysis of shields and gerson. but first, the other news of the day. here's hari sreenivasan. >> sreenivasan: wall street finished its best week in more than two years, after getting a lift from june economic data. manufacturing activity increased for the first time in four months, and general motors, ford and chrysler reported double- digit sales increases. the news sent the dow jones industrial average ahead by 168 points to close at 12,582. the nasdaq rose 42 points to close at 2,816. for the week, the dow gained 5%; the nasdaq rose 6%. minnesota's state government was

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closed for business today. the shutdown began at midnight, after democratic governor mark dayton and republican leaders failed to reach a budget deal. dayton wants to raise taxes on high earners to close a $5 billion deficit; republicans want more spending cuts. many of the state's parks and campsites closed friday, anticipating the shutdown. it meant that many holiday weekend visitors were turned away. new abortion laws are being challenged in two states. a federal court in kansas heard arguments today against a licensing law. the law says clinics must meet standards for room size, temperature, drugs and equipment. only one of the state's three clinics-- a planned parenthood facility-- has qualified. another federal judge temporarily blocked a new law in south dakota. it requires a three-day waiting period and mandatory counseling for women seeking abortions. venezuelan president hugo chavez has confirmed he is battling cancer. the 56-year-old socialist leader announced it last night in a televised address from cuba.

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he had been in seclusion there, amid growing questions about his health. chavez said he had a cancerous tumor removed, but he insisted he's doing better and is still in charge. >> this is a major intervention performed without complications after which i continue to recuperating while i keep receiving complimentary therapies to combat the various types of cells found. and so continue on the path of my full recovery. meanwhile, i have been kept informed and in control of the actions of the venezuela government, in constant communication with the vice president and my team of government >> sreenivasan: chavez did not say just when he would return home to venezuela. he has been in power for 12 years, nationalizing much of the economy, and attacking u.s. policy in the region. he has said he would run again in 2012. greece today banned a flotilla from leaving port to sail to gaza. the greek coast guard turned back a boatload of americans who did try to put to sea. several hundred pro-palestinian

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activists hope to use the group of nine ships to break an israeli sea blockade. it was imposed after hamas militants seized control of gaza in 2007. last year, an israeli raid on a similar flotilla killed nine activists. those are some of the day's major stories. now, back to jim. >> lehrer: in syria, there was another friday of protests and deadly responses, with reports of another 24 people killed, but also some gestures of reconciliation. margaret warner has the story. >> warner: the nearly four- month-long uprising against president bashar al-assad showed no sign of abating today, with some of the largest protests yet. >> ir-hal! >> warner: in the city of homs, marchers thundered cries of "ir- hal", or "go", a demand echoing across the arab world this year, aimed at longtime rulers. elsewhere in homs, security forces fired on protesters from roadblocks.

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large crowds also turned out in most other major syrian cities, in the now-weekly protests after friday prayers. in hama, one sign told assad "sorry, president, game over." activists said more than 200,000 people filled the streets. in damascus, demonstrators marched near the great mosque of mezze and in other neighborhoods. the protests appeared peaceful, but clashes and deaths were reported as well. in the north, the syrian army reportedly staged new attacks, aimed at stanching the flow of refugees toward the turkish border. more than 10,000 syrians are now at camps in southern turkey. during a visit to lithuania today, secretary of state hillary clinton issued a new warning. "it is absolutely clear that the syrian government is running out of time," she said. "they are either going to allow a serious political process, or they are going to continue to see increasingly organized resistance."

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despite international criticism- - and sanctions-- the assad regime's crackdown has killed some 1,400 civilians nationwide. but ten days ago, president assad gave his third speech of the crisis, offering a dialogue with the opposition. and some 200 government critics were allowed to meet this past monday in damascus. >> our demands are part of the syrian people, and our demands is the demands of the syrian people. >> warner: for more on the situation there, i spoke earlier with deborah amos of national public radio in damascus. she's one of a handful of foreign reporters recently allowed into syria. deborah amos, thanks for joining us. there were reports today of tens of thousands, perhaps hundreds of thousands of protestors in the streets around syria. what was it like where you've been. >> well there are actually competing demonstrations here in the capitol you may be able to hear there was a mass rally of support for president bashar al-assad,

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this country is far from unified there were huge protest, opposition people say the biggest yet after 15 weeks of protests, in particular in the city of hama. they say there were 200,000 people in the streets there. the security police and the army have withdrawn three weeks ago from the city of hama. so they can do whatever they want there. and they do. we talked to a man tonight who said that the young people clean the streets after the protest even picking up the cigarette butts, so hama is essentially running it self. we were also for the first time ever taken to a protest by our government escort. they took us to a suburb of damascus, small suburb called barza and they allowed us to walk into a protest to talk to people. also another place for the security police withdrew. >> warner: at the anti-government protest that you went to were all the demonstrators at all limited in what they could say? did the government forces try to interveer at all? >> they didn't.

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there were police outside the town. we were taken there by our government escorts and they said look, you can't stand here on the street, it's dangerous. these people have guns, they have knives. and we were all just a little bit fearful about what was going to happen. as people came out of the mosque, about 300 demonstrators moved in to the street. they had already prepared banners so obviously they had them in the mosque. they were young people in their 30s, professionals. a man told me was a dental technician. i met a professor there, english speakers. and they were a little nervous about speaking to us. because here we were with the government. but it was allowed today this was something new today it was a gesture by the government. and so as they got braver about talking to this small contingent of western reporters they said look, today is different because you're here. last week we lost four people in the streets. last week we had injuries. there were -- there was a

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makeshift clin anything the city because people were afraid to go to a hospital. afraid they would be aest from -- arrest ready. but it was very interesting as people took the wraps off their faces, some of them gave us their name. they were feeling their way along in this new situation that nobody is sure of it was small, to be sure. 3 -- people. but they say that they have been out every week since march. >> warner: tell us about that meeting you went to on monday of the critics of the government in a hot nell dam as does -- damascus watch. was that like and what did it tell you about the state of the resistance movement. >> that was also something new here. in fact, first time ever for the opposition to meet in the heart of the capitol this is a country where for 40 years it's been run by one party and one family. so to have this mighting was really something to see. and these were an older generation of opposition leaders. many-of-them had been jailed for their views in the past. had spent long time in jail. so here they were out in the

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open, calling for a change in the system here, asking, demanding for a change in the system here. it is telling you something that the government is trying to find a way out of this crisis. they're talking about a national dialogue. the president wants it to have a national dialogue, he says on july 150th. this group says nada, we are not your partners until the violence stops on the streets. and then there is another group, and these are the younger, organizers of the street protests. they have really come to prominence there are leaders who are emerging among that group. and this is a new dynamic in what has happened over the last four months here. >> and are those too camps unified or do they have distinct and differing approaches? >> it is not so much whether they are unified or not. they don't need each other. and they speak, you know, across social media platforms so you may find out what young leaders of

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actually the street demonstrations want by reading their facebook page. one of the things that they did say about the meeting on monday,. older generation of opposition, you don't speak for us. you can't talk in a national dialect for us. we are our own constituency. we have been out here taking these risks. we have been dying on the streets of damascus so you could sit in a damascus hotel and talk about changing the system here. >> warner: finally what's the atmosphere in damascus, does it feel like a country under siege or in the midst of a revolution? >> it does not. damascus is very normal. you know, shops are open. you don't have so many customers. hotels are rope there are no tourists here. those are the things that you notice. the economy is reeling from what has happened over the last four months and you can see it and people really, you know, they want to you come in their taxi cab, they want to you come to their restaurant. they haven't had any

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business. tonight, of course there was this huge mass rally so you feel that there is some reason that people feel that they need to come to the streets. the country is divided. you have plenty of support still in damascus for president bashar al-assad, whether they agree with the way the government runs things is really unclear to me. what they are afraid of, as somebody said to me the morning after, they don't know who the protestors are. they don't exactly trust them. there is sectarian tension in this country. and that's when you feel that there is a crisis. to the by what you see on the street. there's not gun fire in the street. although tonight i don't know if you can hear t but there are huge protests behind me. but you know, you don't feel like are you nay dangerous capitol, you don't at all. >> warner: deborah amos of npr, thank you so much. >> thank you. >> brown: next, how a mortgage

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giant with a public purpose helped inflate the housing bubble in the lead-up to the financial crisis. it's the subject of a new book, and newshour economics correspondent paul solman has the story, part of his continuing reporting-- "making sense of financial news." >> reporter: the washington home of fannie mae. this so-called government- sponsored enterprise, and its cousin, freddie mac, increases money for homeownership, buying home loans from banks and packaging them into securities to sell to investors everywhere. a new book, though-- "reckless endangerment"-- argues that, for the past two decades, fannie pursued profit for its own sake and bought riskier and riskier loans that pumped a housing bubble bound to burst. when it did, fannie and freddie failed; a federal bailout that has cost some $130 billion followed. we talked to co-authors gretchen morgenson, a pulitzer prize winning reporter, and finance

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analyst joshua rosner outside fannie's headquarters. so the main culprit of your story is fannie mae, right behind you there. why fannie mae? >> it was a primary mover, a first mover in the process to relaxed lending standards, to go downhill into the sort of sub- prime morass that really got us into trouble. and it was able to wrap itself in the american flag of homeownership and capitalize on its great and lucrative government subsidy. >> reporter: how does the government subsidy work? i mean, it isn't the government actually giving money to fannie mae, is it? >> fannie and freddie were given a lower... a lower borrowing rate in the markets by investors who always assumed that they were government-guaranteed. >> reporter: lower borrowing rates because those investors who lent fannie money to buy mortgages believed, if it

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couldn't pay them back, the government would. and in fact, the government did after fannie's failure in 2008. those lower rates amounted to a $6 billion subsidy, say the authors, much of which went toward enriching fannie mae's shareholders and executives, and lobbying against constraints. >> they generally squelched oversight with all... always with the same tactic. you get the realtors, you get the homebuilders, you get community groups, you get community activists to say, if fannie and freddie are constrained, it will have a negative impact on homeownership rates. >> reporter: right across the street-- the james a. johnson housing and community development center, named for the man who, say the authors, built fannie's empire. >> james johnson was the chief executive of fannie mae from 1991 to 1998; stayed on at the company in a high position in 1999. he was the architect of the company's ability to capture

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congress, to neutralize its regulator, to actually write legislation that would enrich its profitability. >> the target and the goal was to make sure that people on capitol hill liked the company, saw the company as the face of housing, so that senators and congressmen could say to their constituents, "look, we're increasing homeownership and you're the beneficiary." >> reporter: fannie mae had no comment on any of the charges in the book. but fannie's supporters say it was trying to do something almost all politicians believed in-- making housing more affordable for more people, especially the less well-off. so, isn't home ownership good social policy? >> not if you're giving loans to people who can't afford to pay them back, okay? and so, if you are perverting the homeownership process because you are trying to enrich yourself, increase your profits, which fannie mae was absolutely determined to do, then that becomes a perversion of homeownership. >> reporter: and james johnson

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himself, how did he do? >> jim johnson walked away with almost $100 million from his term at fannie mae, and stayed on as a consultant for about $600,000 a year. after pressure, he took cuts on that $600,000 to about $400,000 and gave up other perks, including a chauffeur. >> reporter: former c.e.o. johnson, who wouldn't speak to the authors, hasn't returned our calls either, or, as far as we can tell, ever responded to the charges. >> reporter: on capitol hill, morgenson asserted that fannie had powerful allies, like democrat barney frank. >> in the early '90s, when congress was writing the legislation that would have a bearing on fannie mae's regulator, barney frank was really very aggressively on the attack whenever anyone would walk onto capitol hill and say, "we should be careful about safety and soundness. let's make sure the regulator is tough, let's make sure that the capital requirements are high." barney frank would be in there

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hectoring, shouting-- "we don't have a safety and soundness problem. we should care more about housing." >> reporter: representative frank rejects the charge, thinks morgenson is getting back at him for his complaints about her coverage of the dodd-frank financial reform law. >> i made the mistake of being very critical of her, i guess, to her editor, because i thought she misreported on the financial reform bill. so she's been very angry. that simply isn't true. i asked her for the evidence that i was constantly hectoring. there was one case, one hearing she cited. in fact, the bill in question that passed in '92 was signed by george bush. it was non-controversial. one version passed the house with only eight negative votes. the second was a voice vote. she simply is describing a debate that never happened and, as i said, i know there are reporters that think you should never criticize them, and they get even. that's what she's doing. >> reporter: frank's response to other charges in the book is on our web site. others point out that the sub- prime boom was stoked by private banks; fannie and freddie-- latecomers to the debacle. and the authors are quick to say

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that both democrats and republicans on capitol hill were fanning the fannie mae flame. former house speaker newt gingrich, for instance, appeared at the opening of one of the partnership offices fannie mae set up around the country. >> newt gingrich was there on the scene at one of these ribbon-cutting ceremonies in atlanta, you know, crowing about the contributions that fannie mae had made. >> fannie was shrewd enough to understand that, in order to push their agenda on capitol hill, they needed to be supported by economists, as well. and so they started a series of papers where they would hire notable conservative economists like glenn hubbard, or progressive economists like joe stiglitz and peter orszag, to justify various aspects of fannie and freddie's mission, or dispel concerns about their safety and soundness. and really used those as lobbying points on capitol hill.

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>> reporter: we've posted the rest of the stiglitz response online. hubbard and orszag declined to respond on the record. >> reporter: in writing this book, what surprised you the most? >> we started the process of resolving the crisis talking about a troubled asset relief program, getting the troubled assets off the bank balances sheets. we haven't done that. most of these assets still sit on the bank balance sheets, most of them remain there at inflated values, and there's still no real interest in lifting the kimono so the public and investors have any real understanding of what it is they're invested in, or what the systemic risks are. >> reporter: but we don't want to lift the kimono, because then banks might have to write down their assets and we could find ourselves back where we were at the depths of the crisis of 2008. >> which means that we have a kabuki theater where some future administration, future legislators and future regulators are going to have to resolve a crisis which hasn't fully been dealt with yet.

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>> reporter: a metaphor that may be unfair to kabuki theater, but suggests the obscurity in which the funding of housing in america-- and fannie mae-- came so disastrously to operate. >> lehrer: and to the analysis of shields and gerson-- syndicated columnist mark shields, "washington post" columnist michael gerson. david brooks is away tonight. mark what do you make of that fannie mae story? >> well, the -- for home ownership is something i can recall president clinton speaking about it, president bush speaking about it, how important it was, a measure of achievement in the country. but as you go to the story of fannie mae, what it comes down to is they privatized profit. in other words, whether it's the investor. but they socialize losses. in other words, everybody

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else in the country picks up the tab when it doesn't, when it goes under. that is really --. >> lehrer: while you're making money yourself. >> you're making money, it's mine. >> lehrer: but if i lose t it's yours, government. >> it's yours, taxpayers. and i think that's a really bad public policy. >> lehrer: michael? >> well, it's still also the political context in which everyone's operating right now. as far as i know the president didn't have anything to do with this. but the bursting bubble of the housing market has really undermined coidence in the whole economy. we've had a larger percentage fall in housing prices in this crisis than we did in the great depression. it's hard for people to feel good about the economy when their principal asset has declined in that way. >> lehrer: and fannie mae and freddie mac were huge dominoes in this collapse, were they not? >> it's absolutely true. as it points out t this was a massive bipartisan failure. both parties built this house of cards. nobody really wants to take responsibility in the aftermath because it might you are hurt the markets

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even further. >> lehrer: all right, on to other things, mark. the hot new tone from president obama and returned somewhat by republicans on this debt ceiling debate, what's going on? >> well, i mean, the knock on barack obama is he is too cerebral too, cool, too detached it. so he gets a little combative in a press conference, immediately says my god, almighty this guy is a pier 6 brawler. what's happened to him. is he a rabid dog? no, i think -- i think it was from my own reporting i've concluded that there was an authentic reaction on his part of anger and frustration. spearheaded in large part when eric cantor, the republican majority leader withdrew from the talks from vice president biden which had been going quite well. and he agreed on a wednesday that he would -- that everybody would be back on thursday.

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see you tomorrow, fine. and then that wednesday night the president met with john boehner in an unscheduled meeting, whether that triggered it. and the next morning got up and i'm out there of. >> lehrer: cantor said. >> the president i think feels the democrats have moved on extending cuts. they've been more than flexible. and on the other side he sees an inflexibility. and i think he wanted to lay down the mark that this is serious stuff we're talking about. >> lehrer: what did you think about the president's performance. >> i think he spent a lot of time telling members of congress that they need to show leadership. but if you talk with members of congress, both republicans and democrats, they are pretty critical the president hasn't shown much leadership on this. he doesn't really have a plan on the table. his own budget is irrelevant. the senate voted against it. and so you know, he's impatient with the congress but he's vague in his own prescriptions in this case. i think also that the press conference shows an even deeper problem, which is the

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president wants to talk about jobs which is how he began the press conference and economic growth. but the only topic in washington is about debt, deficits and cuts. he's not controlling the context of the political debate right now. republicans are controlling that debate. i think that it's hurting him. >> lehrer: michael, what is the problem for the republicans to completely just not, they refuse to even discuss any kind of revenue in this package to try to reach the debt ceiling deal. in other words, that's why cantor walked off. >> there is plenty of inflexibility to go around. democrats are saying we're not going to karen titlement cuts unless we get tax increases. republicans are saying we are not doing tax increases which takes just about everything off the table. you are left with disfence spending, foreign relations spending, it's not enough to get trillions of dollars in

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savings out of this system. but that could be what they are trying to pov towards which is let's just agree on this, not pursue broad reforms on taxes and entitlements and get past this election without making any real choices. >> lehrer: so you don't think the republicans will ever, ever agree to any revenue enhancement? >> i think the big question here is you can get revenue enhancements without tax rate increases? there are things you can do getting rid of ethanol subsidies or deductions for second homes that would raise revenue but wouldn't necessarily increase tax rates which i think republicans have a good economic case. you shouldn't do in a recession so i think that's the question. i would like to see more flexibility on that issue. i think wah would come to some agreement. >> lehrer: what do you think? >> i think the republicans are irrational. i really do. i think it's politically indefensible and civicly indefensible, the position they've taken. >> lehrer: on taxes. >> on taxes, on revenue. the reality is this. that every single group

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whether it's simpson bowles, whether its alice rivlin and pete dom inwill see, whoever it is, semi serious that if there has to be budget cuts to deal with the deficit problem and the debt, that there has to be revenue increases. it's become a dog ma with republicans now that anybody who votes for tax increase is no longer a member of the club or the party and is driven out of the tent. ronald reagan raised taxes six times. the amount of money we're talking about raising taxes which would be $400 billion over ten years, is less than 1% of the money to be collected in the next ten years. less than 1%. and if you look at it and this was presented in a way yesterday, i thought was a brilliant document. if you look at it in terms, jim from 2001, the last time that the budget was balanced, fiscal year, 128 billion surplus, and we look at what we're spending on discretionary spending, that's one that isn't mandated, it is exactly the

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same. inflation or dollars. and if population growth as it was then. defense spending has gone up 80%. tax revenues are down 18%. we are actually collecting $500 billion less in 2011 than we collected in 2001. >> i think democrats are being equally unreasonable on the issue of entitlements. this is our long-term spending challenge. it's not that we tax too little. it's that we have expensive entitled commitments, an aging pop lakes and health care inflation that have made that portion of the budget completely unsustainable. democrats will not deal with that in this context. and i think that that is a failure as well in this system. people are going to have to give in this process. and you know, right now every one knows that this debt limit has to increase. >> okay. >> everyone knows it. but no one knows what the path is given these deeply seeded disagreements. and republicans make the point that we have a

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historically high level of the economy in spending right now, okay, which has gone up considerably. the normal level of taxes is more like 20% of the economy. i mean which is well below, republicans want to bring spending down to historical level of taxes as a percentage of our economy. that's their argument here, not to bring rates up to cover a larger portion of our economy. >> but okay, we've got the differences here. you say you don't see a path that can make this thing work? >> a path to bring these two sides together? >> if both sides can within the realm of reality, avoid doing either taxes or entitlements and just do more cuts in the relatively small category of spending, they might get past the election. do enough to increase the debt ceiling and get past the election. >> what are the politics of there being actually being at fault on october -- i mean august 2nd.

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and the country does default who pays the political price, the republicans or the democrats or both or what happens? >> probably i mean certainly the country does. i mean and i think -- >> so i'm assuming that. >> if this weren't, the stakes weren't as high, and the consequence weren't as grave, this would be a fascinating political drama and screenplay to look at. because you've got mitch mccon whole is looking over his right shoulder at jim demint soes's against taxes. john boehner who is ver nous about cantor. you have a tension between congressional democrats and the president because he let them down in december on the extending the bush tax cuts. you've got all of these subcurrents but the reality is that this is real. and the consequences are enormous. i think probably the president, i would say the president would prevail in, and i think the president in the press conference was laying down what the consequences are and what the stakes are. i think that was the point

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he was laying down. and trying to change that debate. mike sell right in the sense that in the two major fights of this administration, the stimulus package and health care, the president lost the narrative. i mean the democrats have not been able to carry the debate publicly and they can't let that happen on this fight. >> do you think, michael, that the republicans understand and accept what president obama and what mark shields and others say about the catastrophic event it would be if we did, in fact, default on august 2nd? >> i any most republicans do. i think they view this as a very undesirable outcome. i think there are some members of the house that might have a slightly different perspective on that but i think members of the senate, and it does raise the prospect there could be another element of this strategy by which the president just decides at the end of this process to put 800 billion dollars in spending cuts on the table

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and say, dare republicans to shut down the government in they don't accept that i think republicans would be under a lot of pressure in that circumstance to agree to that. >> lehrer: finally, we just got a couple minutes left. let's start with you, michael, michelle bachman -- bachman is now a candidate. >> i think she has benefitted immensely from not being sarah palin. she has much of the appeal but is a better candidate in a lot of different ways. i wouldn't underestimate her strength in iowa. >> lehrer: born there. >> tea party appeal, strong evangelical appeal, that is a strong combination. and i think that her rise is very bad for tim paw lenty who she has taken a lot of the attention and a lot of the oxygen right now in a period when pawlenty needs to raise his profile and raise some money, it's become harder. >> lehrer: both from the same state. how do you see michele bachmann shns she is he had had a great introduction. i think she's a natural candidate. i think she is a good

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performer. she has got a natural identification with much of the iowa republican party which is culturally and religiously conservative party. a party that where mike huckabee did very well in 2008, won the caucus over mitt romney. and i think -- i think right now she's a natural fit. contrast her introduction and first ten days with that of other principal house candidate, not ron paul but newt ging rich. and you know, who is still, i think, visiting tiffany windows at this point. >> do you see a serious opponent within that wing of the party for bachman, has she got -- does she have the tea party wing, et cetera that you just described all to herself. >> people are waiting to see what sarah palin will do. i don't think she's making a serious run with early supporters in early states. so i think bachman.

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>> her against all the others. >> i think benefits romney if his main opponent is bachmann because most republicans view him as more electable in this race. >> don't forget rick perry who would in fact have an equal appeal toll --. >> lehrer: if he runs. >> if he does enter the state. >> lehrer: thank you, mark, good see you, thank you, michael. great to see you again. >> brown: now, as the launch of the final space shuttle draws near, we have an encore reading from a poet who explores the cosmos through her verse. she's tracy k. smith, a creative writing professor at princeton university. her recently-released book is titled "life on mars." >> i grew up in northern california in a town called fairfield, which is kind of exactly between san francisco and sacramento. a small suburb. and i'm the youngest of five children.

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the last section of the poem is directly about my father. it begins when my father worked on the hubble space telescope. it really was my attempt, or the opportunity that i took to go backwards and think about that moment in our family when my father was still this all- powerful figure who would live forever. and the questions that were being asked, not only by the scientists and engineers, but also the children. i remember the pride with which he opened this volume of these first amazing photos that showed us things that we had only imagined in fictional terms before. so much of my poetry begins with something that i can describe in visual terms, so thinking about distance, thinking about how life begins and what might be watching us. my father spent whole seasons

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bowing before the oracle eye, hungry for what it would find. his face lit up whenever anyone asked. and his arms would rise as if he were weightless, perfectly at ease in the never- end night of space. on the ground, we tied postcards to balloons for peace. prince charles married lady di. rock hudson died. we learned new words for things. the decade changed. the first few pictures came back blurred, and i felt ashamed for all the cheerful engineers-- my father and his tribe. the second time, the optics jibed. we saw to the edge of all there is, so brutal and alive. it seemed to comprehend us back. i didn't think i was setting out to write a book about god and about death and about the finite nature of our lives, but those are the questions that were really on the surface for me.

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for me, a poem is an opportunity to kind of interrogate myself a little bit and see in what ways i'm complicated by situations like that. or even, i don't know, like somehow connected to in ways that might be uncomfortable. "we are a part of it. not guests. is 'it' us or what contains us? how can 'it' be anything but an idea, something teetering on the spine of the number 'i.' 'it' is elegant but coy. 'it' avoids the blunt ends of our fingers as we point. we have gone looking for 'it' everywhere, in bible, in band width, blooming like a womb from the ocean floor. still, 'it' resists the matter of false versus real.

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unconvinced by our zeal, 'it' is unappreciable. it is like some novel, an unreadable." the other thing that was happening during the time i was writing this book was i became pregnant with my daughter. that was another big "it" that in some ways, i was really grateful for because it gave me a sense that not only is there this ever-after that our loved ones disappear into, but there's some source that might be generating other people, other, you know, love. so it was a beautiful kind of thing that i was able to write into a little bit. >> brown: you can watch more of our interview with tracy k. smith and see her read other poems on our web site. >> lehrer: again, the major developments of the day: former international financier dominique strauss-kahn was released without bail as questions arose about the woman who accused him of sexual assault; a federal judge in kansas temporarily blocked a new state licensing law that imposed new

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mandates on abortion providers; and vast crowds turned out in syria for another friday of protests and deadly responses. 14 people were killed. and to hari sreenivasan for what's on the newshour online. hari. >> sreenivasan: as paul mentioned in his report, we have expanded responses to the book "reckless endangerment" from massachusetts congressman barney frank and economist joe stiglitz. that's on our "making sense" page. and there's a new wave of interest in an old technology for communicating during emergencies-- ham radios. our science unit looks at the trend. plus on "art beat," jeff talks to eleanor henderson, author of "ten thousand saints," a novel about teens, underground youth culture, and troubled family relationships. all that and more is on our web site, newshour.pbs.org. >> lehrer: and again to our honor roll of american service personnel killed in the iraq and afghanistan conflicts. we add them as their deaths are

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made official and photographs become available. here, in silence, are 11 more.

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>> brown: and that's the newshour for tonight. on monday, we'll look at the festivities at home and abroad as americans celebrate independence day. i'm jeffrey brown. >> lehrer: and i'm jim lehrer. "washington week" can be seen later this evening on most pbs stations. we'll see you online and again here monday evening. have a nice holiday weekend. thank you and good night. major funding for the pbs newshour has been provided by: chevron. we may have more in common than you think.

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and by the alfred p. sloan foundation. supporting science, technology, and improved economic performance and financial literacy in the 21st century. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. captioning sponsored by macneil/lehrer productions captioned by media access group at wgbh access.wgbh.org